My savings goals

This is going to sound strange, but I haven’t actually fleshed out my savings goals and exactly how much I’m going to need to save in order to retire early. I just know a few things:

I want a sizable emergency fund

I want a “next car” fund to always have about $8k (my past used cars have costed about $8k)

I’m going to max my 401k contributions

I’m going to max my IRA contributions

I want my house to be paid off

The rest is going into taxable accounts

So, let’s start from top to bottom.

I want a sizable emergency fund

An emergency fund should be able to tide me over to the next job if I lose my job and it should do it even if the furnace breaks at the same time. For this, I want 6 months of expenses ready to go at nearly a moment’s notice. What is 6 months of expenses for me?

So, I’m looking at about $10.3k for my expenses in a typical 6-month window. However, I don’t want just a typical 6 months. What if that furnace goes? What if I want to go on a trip with my newly found free time? Let’s bump that up to a nice $12k, to spend $2k/mo in unemployment. It won’t just be sitting in my bank account gaining next to zero interest, though. I’m readying up another post to explain where I’ll be storing these funds, why, and how I’m going to save for them.

I want a “next car” fund

This is just $8000 set aside so that I can purchase a decent, used car without getting a loan. Thanks to my electric bike, I’ll be putting much less mileage on the ol’ Prius, so I don’t plan to have to use these funds for quite some time. However, I just want the money ready to go when I’m ready to purchase the next vehicle. I’ve had amazing luck with the used cars I’ve selected and I know almost nothing about buying cars or haggling. I just know that the last car I bought was $8k, and it’s awesome. Haven’t had a problem in years (knock on wood). Hell, maybe if it blows up completely, the electric bike will have to officially take over heavy duty transportation!

I’m maxing my 401k contributions

My company has a match, so I’m at least meeting that. However, I’m also putting in 36% of my paycheck in order to meet the maximum allowable contributions so that it lessens my taxes. It will be a long, long time before I can touch this money…but hopefully with some nicely timed conversions, it will be before the customary age. I’m not quite at that stage, I just know that I should be maxing this puppy out now and worrying about it later.

I’m maxing my IRA contributions

Right now I am maxing my Traditional IRA contributions, since when I imagine myself withdrawing the funds, it will be under a much lower tax-bracket…as I’ll be semi-retired. I plan on using the Roth conversion ladder over a long period of time so that I can deposit tax-free money now, and then withdraw tax-free money as it is converted to a Roth IRA. Just another way to gain tax-free investments!

Paid off house

I don’t think I’m going to pay this off very quickly, due to the tax benefits of having a duplex, but I would like this to be paid off before I retire…so I am still accelerating the payments. I have $83,792.15 left to go from a purchase price of $98k. This is going to be pretty easy to accelerate, since the rent is paying $650 of the mortgage/taxes/insurance every month. I just like the security that having a paid off house would bring. Also, not having to pay $493 in mortgage payments anymore would free me up to be a bit more lazy with my post-FIRE income generation.

Taxable accounts

For the rest of the money that I have left, I am dumping it into taxable investment accounts. The hope here is that I will have a sizable Eff You Fund that can sustain me until I can withdraw from my 401k and Roth IRA in the most efficient manner. If I spend about $1,717/month, I’m going to need $515,100 in a taxable account to withdraw from. But, this is only if I don’t want my taxable funds to deplete before I get to my 401k/IRAs. If I don’t mind them going to $0, due to other sizable investments, I could “retire” earlier.

How am I going to get there?

I’m going to save that for another post, since I plan on getting a bit more research done for it. I’d also like to keep this post just about goals, so that I can update and refer back to it without getting lost in the text. I can assure you, though, that the investment process is nicely automated, safe and out of my head every day.

You may be noticing a lack of an HSA account. This is because I get free healthcare from the VA for now, so I don’t need health insurance through the company I work for. I’m going to take that as the huge bonus that it is, and dump the savings into one of my other goals.

Until I get that post out the door, what do you think of my savings goals? Am I missing something obvious?

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3 Responses

Great goals. I like the goal of saving for the car. I don’t have a specific fund or amount dedicated to a replacement vehicle (yet), but I also continue to increase cash position each month to for these types of large expenses. Although I really want to pay off my current student loans, I also don’t want to take on any additional debt if the furnace goes out or my car breaks down.

I have about a year’s worth of expenses/debt payments in liquid investments/emergency fund, but common finance articles may judge that is too much. However, each person needs to assess their situation and their risk tolerance.

Is your ~$1,700 of expenses your net outflow each month? (ie: does this include the net of your rental income/expenses?).

Another goal to consider is to try to address any “Achilles heel” in your budget. Do you spend too much at bars, fast food, hobby? Maybe try to make a specific goal to address a weakness in order to achieve your goal of saving more.

One thing I think might be missing is the specific numbers, specifically related to your taxable account contributions. The “rest” is going to taxable accounts. Is this $1,000, $10,000, etc? Might help you focus on these goals later on in the year and knowing if you achieved them at the end of 2016.

You raise a good point…maybe I just need a blanket “large expense” fund that’s liquid, like the 90/10 bond/stock account. It should be large enough to maybe cover the cost of any emergency, but not designated for anything specific. The difficulty would be coming up with a numbered goal for this account, since you probably won’t need all these repairs and a new car at the same time.

I think the difference with the “new car” fund, is that I know that I’m going to need a new car in ~5-6 years. I have no idea when the furnace will explode, and the emergency fund should cover that. I don’t really want to stockpile money in a safe/liquid account to cover all my fears.

My $1700 expenses is just what I spend to live every month, but it doesn’t appear that Mint calculates mortgage payments into this. This would be things like food, transportation (gas/insurance), utilities. Now that I think about it, that does seem high…but it adds up. I will start to go over my monthly expenses regularly in the future so that I can have a better explanation (and comprehension for myself!)

I call it “the rest”, because for now, I’ve stopped managing/budgeting which taxable accounts/goals get how much every month. I did this because I have some rental property expenses (new windows/doors) that I’ll need to pay for, and I don’t want to be short or have to sell some assets to pay for it (at maybe a loss). In about a month, all the major upgrades should be done and I’ll consider going back to a set amount. I do sort of like the idea of “less budgeting” though. It’s more simple to think “Whatever I don’t spend after a certain bankroll gets added to my investments.” I’d still be able to plan/estimate future balances, but with past/average deposits.

I’m not the type of person that would see more money in my account and spend it.. so that doesn’t worry me for now 🙂